With backgrounds on the sell side and strong interests in math, it shouldn’t come as a surprise that both Cortney Swensen and JP Gagne switched to the buy side as fund managers for Thrivent Short-Term Bond Fund (THLIX).
“After earning my MBA, I worked on the sell side for a year, and quickly determined that the buy side was a better place for me with my math background in my previous career as an engineer,” said Swensen, who has managed the fund since 2020.
Gagne joined Swensen as a co-manager just a year later. “I've always had a strong math and analytical background, and I always used it in my own personal investing that I wanted to take to the institutional side for other investors,” he said. “I've loved every minute of it, and I've loved every challenge that's come with it.”
Swensen focuses on the corporate credit portion of the Fund. She looks for investment-grade corporates and high-quality, high yield. Gagne focuses on securitized bonds backed by interest-bearing loans like auto loans, student loans and mortgages.
Benefits of short-term investing
The current higher interest rate market is a great opportunity for investors to explore short maturity bonds, especially with the U.S. Treasury curve still fairly flat. The current difference between investing in 2-year U.S. Treasuries versus 10-year U.S. Treasuries is only 0.22%. With uncertainty around what the U.S. Federal Reserve (Fed) next move may be, the market is likely to continue to see very high volatility in interest rates. The Fund offers short duration fixed income exposure, making it less sensitive to interest rate changes, while still taking advantage of the higher rates.
Duration is a measure of a portfolio’s sensitivity to changes in interest rates; the longer the portfolio’s duration, the more sensitive it is. Also, the longer the duration, the greater potential risk or reward.
“The demand for short-term investments is driven by the shape of the yield curve right now,” Gagne said. “October 2022 was the first time we saw the yield curve invert during this cycle. What that means is that the 2-year yield is higher than the 10-year yield point of the curve. Although the yield curve normalized in September 2024, with very little slope to the curve, you can still find very attractive yields without having to take on much interest rate risk during a period of a lot of uncertainty around tariffs, inflation and the economy.”
Interest rate changes
Quickly rising interest rates through 2023 combined with dropping rates in 2024 and potential for more in 2025 keep Swensen and Gagne active in the Fund.
“As the market and interest rates continue to change, the biggest tool that we have is managing to a duration,” Gagne said. “In 2022 and 2023, when we knew that interest rates were going to continue to go higher as the Fed was hiking, we ran the portfolio shorter than our peers. We had more investments in the 1- to 2-year area and less in the 4- to 5-year area. Now, as the Fed is done hiking, we positioned the portfolio to be more nimble and duration-neutral. Therefore, it gives us the ability to adjust our investments as we see fit and as we get more clarity on what the Fed is going to do.
“Even though the Fed cut rates in 2024, with the new administration in the White House and concerns around tariffs’ impact on inflation, the consensus now is that the Fed will pause and wait to see what happens as the year plays out,” Gagne added. “Thus, the new market consensus does appear to be higher rates for longer. With this uncertainty in inflation and interest rates, Thrivent Short-Term Bond Fund is a great place to continue to lock in current yields without taking much interest rate risk.”